Porto Office Market 2019 Cover: Porto Office Park
PORTO OFFICE MARKET 2019 COVER: PORTO OFFICE PARK
A publication:
With the support of Porto City Council: PORTO OFFICE MARKET
Porto: Between a river full of investments and a sea reflecting sound economic waves
The city of Porto is increasingly seen as a popular IV. Campanhã’s Intermodal Terminal: Promised to the investment destination, thanks to its value proposition city since 2003, the Terminal that completes the based on the ample availability of qualified human mobility system of the eastern part of the city was resources, excellent infrastructures, a vibrant and never built. The City Council plans to take multi-functional entrepreneurial ecosystem, advantage of the existing works on the Terminal to a multicultural environment and the recognized build an urban park and better access points to quality of life in the city. All these conditions enable Campanhã Station; the city to reinvigorate its economic model. In summary, all areas of the city offer attractive 2019 is the year in which a lot of the city’s future will opportunities for residential and corporate real estate. begin to materialize: We hope you take advantage, for the sake of Porto, its people, and the experience that we provide to those I. Matadouro Project as the economic engine of the who visit us. Campanhã area: while 2018 witnessed the start of major restoration works on the emblematic Bolhão In this context we very much welcome the second Market, 2019 should see the start of works on the edition of this report on the Porto office market. More Campanhã Matadouro Project (subject to approval and better market information, and greater by the Court of Auditors). This will house a transparency, increase the quality of decision making, corporate space, as well as cultural and social also fostering the attraction of a group of investors activities; with a longer-term and more structural character investment profile, thus providing the market with II. Rosa Mota Pavilion concluded: The refurbishment more sustainable growth conditions. of the Rosa Mota Pavilion, which began in 2018, will be finalized in 2019. The pavilion has long been in a I therefore hope this investment poor condition, and the old sports hall, later named and promotion of Porto after the Olympic athlete, will be able to host a is to continue! number of uses, such as medium to large-size congresses, musical performances, exhibitions and Ricardo Valente sporting events; Economy, Tourism and Trade and EU Funds Management Councillor III. Construction begins on a new line of Porto’s Porto City Council Underground: This infrastructure is essential to consolidate the public transport offer in the city and to enable new approaches to traffic and mobility. The new line will link Casa da Música to the downtown São Bento station, via undeniably important places such as the Materno-Infantil Centre, Santo António Hospital or Rosa Mota Pavilion;
3 MATADOURO PROJECT 4 PORTO OFFICE MARKET
Porto is currently a serious candidate in Europe 2018 was another for the location of multinational companies in the dynamic year for the technological sector, business process outsourcing and shared service centres. The space requirements Greater Porto office of these occupiers are different from the traditional demand for offices in Greater Porto and the market market, underlining has been adapting accordingly, with increased the region’s economic investment and development activity, both new constructions and refurbishment progress and thanks of existing buildings. to a concerted and In 2017, Cushman & Wakefield produced the first-ever comprehensive study of the Greater Porto successful strategy office market in partnership with Predibisa, to attract investment. with a view to mapping the market and stimulating investment.
Two years after the release of the first report, we are pleased to launch the second edition, which we hope will continue to be a reference for developers, occupiers and investors, encouraging transparency and growth of this all-important segment of the real estate market.
Eric van Leuven João Nuno Magalhães Executive Partner General Partner Head of Portugal
5 ECONOMIC CONTEXT
The Porto Metropolitan Area (PMA) is the second ECONOMIC INDICATORS economic centre of the country and generated PMA - 2018/2019* a GDP estimated at more than €29 billion in 2018, representing 16% of national GDP. The economic 1.9% / 1.5% prospects for the region are positive, with an average annual GDP growth estimated at 1.1% between GDP 2019 and 2022. Similarly to the previous year, the improvement in household disposable income 2.5 % / 1.9% in 2018 remained of the order of 3.5%, contributing Private consumption to a 2.5% increase in private consumption.
3.5% / 1.7%
Healthy levels of consumption will remain throughout Disposable income per household 2019, with an estimated increase of 1.9%, driven by further growth in household income of the order of 8.6% / 8.1% 1.7%. The strong activity in the office market in the region is reflected by an improvement in the Unemployment rate unemployment rate which was 8.6% in 2018 and forecast to improve to 8.1% in 2019.
The economy of the Porto Metropolitan Area reveals a structural change in the last decade, with substantial GVA - 2008 vs 2018* growth observed in the most capital-intensive sectors. Between 2008 and 2018, the scientific and technical +20% activities and information technology increased by Scientific and technical activities 20% and 16%, respectively, in their contribution to the total Gross Value Added (GVA) in the PMA. +17% The importance of tourism in the region is also worthy Retail of note in this variable: the contribution to GVA of the Hospitality & Catering sector increased by 14% in the last decade, and retail by 17%. +16% IT
+14% Hospitality & Catering
* Oxford Economics Forecasts
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TOTAL SUPPLY MAIA
The total office supply in Porto - which includes existing buildings in the municipalities of Porto, Maia, Matosinhos and Vila Nova de Gaia – exceeded MATOSINHOS 1.5 million sq. m of GLA (Gross Lettable Area) at the end of 2018, in more than 500 properties.
The city of Porto concentrates most of the supply, PORTO approximately 820,000 sq. m of offices in more than 250 buildings, which account for 54% of the total.
VILA NOVA DE GAIA
SUPPLY BY ZONE
18%
26%
14%
1 - Porto - Boavista 2 - Porto - Downtown 13% 3 - Porto - Oriental 4 - Porto - ZEP 5 - Maia 14% 6 - Matosinhos 9% 6% 7 - Vila Nova de Gaia
PORTO BUSINESS PLAZA
7 PORTO OFFICE PARK
SUPPLY BY QUALITY Boavista is the largest office zone in Greater Porto, (sq.m by zone) with more than 100 buildings and a total GLA approaching 400,000 sq. m. This location also
100 concentrates the higher quality assets. Buildings classified A or B+* represent 45% of the total, around 90 180,000 sq. m. The municipality of Vila Nova de Gaia 80 is the second largest office area of Greater Porto, 70 with more than 260,000 sq. m, but the quality of its 60 properties is frankly lower: only 16% of the supply 50 qualifies as A or B +. total supply 40
% The eastern area of Porto (Porto - Oriental) 30 is substantially smaller, with just over 130,000 sq. m, 20 but given these are mostly recent projects, the 10 proportion of better-quality offices is the biggest
0 in the market, reaching 59%.
a a s a t P i o i is E a h a v Z M n G The areas of Maia and Matosinhos also stand out a - i o - s e to 5 to d B r a a - o v in terms of quality, with 53% and 47% respectively o P M o rt - - N o 6 P 4 la of their total supply of buildings graded A or B +. - i 3 - Porto - Oriental V 1 - 2 - Porto - Downtown 7
A/B+ B C D
* The assigned quality grades vary between A and D, A being the highest quality and D the lowest
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AVAILABLE SUPPLY
As the Greater Porto office market is gaining momentum, the levels of transparency are too, with information being shared more frequently between owners and agents.
VACANCY RATE BY ZONE
10
9
8
7
6
% 5
4
3
2
1
0 1 - Porto - Boavista 2 - Porto - Downtown 3 - Porto - Oriental 4 - Porto - ZEP 5 - Maia 6 - Matosinhos 7 - Vila Nova de Gaia
The first office market report produced in 2017 by Cushman & Wakefield and Predibisa analysed the vacancy rate of about 70% of the total office supply. In this 2018 update there was a considerable increase in the coverage of the vacancy rate, which was fixed at 88%. The vacancy rate in
Taking into account the information obtained for Greater Porto stood at the sample (over 1.3 million sq. m), the vacancy 7.3% in December 2018, rate in Greater Porto stood at 7.3% in December 2018, representing a significant decline of 450 basis points representing a significant compared to 2017. The Porto areas - ZEP and Matosinhos show the lowest vacancy rates, both decline of 450 basis at 5.6%. The prime market area, Porto - Boavista points compared to 2017 also shows a lower rate than the Greater Porto average, at 6.4%. The highest vacancy rate is found in Porto-Oriental, at 10.7%, largely influenced by its smaller stock, with only 13,900 sq. m of vacant space.
9 VACANCY RATE BY GRADE The analysis of the vacancy rate by grade highlights the obvious shortage of quality office space in Greater Porto.
18 The best quality buildings, classified as grade A and B+, show a vacancy rate of only 3%. Not 16 surprisingly, the indicator rises proportionately as 14 the quality of the supply decreases, reflecting 18% vacancy rates for buildings classified as grade D. 12 The shortage of quality space has led to increased 10 investment in the Greater Porto office supply, with
% several new projects currently under development, 8 as detailed in the next section of this report. At the same time, and particularly in the city of 6 Porto, lower quality office buildings are gradually 4 being converted to alternative uses, mostly residential and hotel – sectors which are equally 2 reflecting strong growth.
0 A/B+ B C D
PORTO BUSINESS PLAZA
10 PORTO OFFICE MARKET
FUTURE SUPPLY
In response to increased demand and the generally FUTURE SUPPLY BY ZONE positive market outlook, Greater Porto developers and investors are actively pursuing large-scale 60,000 development of new office buildings. These projects aim to meet the requirements and specifications of 50,000 the new occupiers who nowadays lead the demand. 40,000 There are currently eleven new office projects under development in Greater Porto, together amounting 30,000 to about 170,000 sq. m of new supply. 20,000 Future supply (sq.m) The 15,000 sq. m Urbo Business Centre will be the first project to open in Greater Porto in the last 10,000 decade; developed by DST, it is expected to be completed as soon as Q1 2019 and was fully pre-let 0 a l a s a t ta P i o i to BNP Paribas. is n E a h a v e Z M n G a ri - i o - s e O to 5 to d B - r a a - Downtown o o v A further 5 projects are expected to be completed o - rt P M o rt o o - - N o t 6 r P 4 la P o - i during 2019, bringing to the market about 78,000 sq. m - P 3 V 1 - - 2 of new office supply. Furthermore, 5 additional 7 projects totalling 80,000 sq. m of new space are currently at less advanced stages, with completions scheduled between 2020 and 2025. There are currently eleven new office projects under development in Greater Porto, together amounting to about 170,000 sq. m of new supply
MAIN PROJECTS IN PIPELINE
BUILDING ZONE AREA (sq.m) COMPLETION DATE DEVELOPER
Urbo Business Center 6 - Matosinhos 15,000 2019 DST
Porto Office Park 1 - Porto - Boavista 31,000 2019 Violas Group
Sonae Building 5 - Maia 6,900 2019 Sonae (Imosede)
Porto Business Plaza* 4 - Porto - Oriental 15,500 2019 SDCi
Palácio dos Correios 2 - Porto - Downtown 16,800 2019 GFH
Centro Empresarial Lionesa** 6 - Matosinhos 45,000 After 2020 Lionesa
* Expansion area ** Includes other real estate use
11 DEMAND
The momentum felt in the Greater Porto office market was confirmed in 2018, which registered a record Between January and take-up: between January and December more than December more than 50 leases totalling 80,000 sq. m were recorded. The average transaction size, of close to 1,500 sq. m 50 leases totalling has increased considerably too, compared to 80,000 sq. m were previous years. recorded
DEMAND BY ZONE
28,000 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 Leased area (sq.m) 8,000 6,000 4,000 2,000 0 1 - Porto - Boavista 2 - Porto - Downtown 3 - Porto - Oriental 4 - Porto - ZEP 5 - Maia 6 - Matosinhos 7 - Vila Nova de Gaia
Source: Consultant’s Pool
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Boavista remained the most sought-after office area in MAIN DEALS terms of number of deals, with more than 20 leases closed totalling over 18,000 sq. m. It was however one AREA TENANT ZONE BUILDING of the locations with the smallest average area, due to (sq.m) Urbo Business the greater representation of small occupiers. BNP Paribas 6 - Matosinhos 15,000 Center Matosinhos absorbed the bulk of office space, with Business Center more than 26,000 sq. m leased over only 9 deals. PROZIS 5 - Maia 14,500 da Maia
Global Media Quatro Rote The Maia municipality also registered significant 3 - Porto - Oriental 5,700 Group Building take-up, of around 15,000 sq. m, mostly related to the District - Offices Regus 2 - Porto - Downtown 5,200 Prozis lease in Maia Business Centre. Porto’s eastern & Lifestyle zone continued to gain market relevance, attracting Centro about 13% of the take-up in Greater Porto, including the Vestas 6 - Matosinhos Empresarial 3,000 Lionesa Global Media Group occupation of about 5,700 sq. m. D. Afonso Sodexo 6 - Matosinhos 2,400 Henriques, 1345 BNP Paribas featured in the biggest deal of the year Marechal Telles de Abreu with the lease of the entirety of the 15,000 sq.m. Urbo 1 - Porto - Boavista Gomes da 2,200 Advogados Business Centre in Matosinhos. Overall, the 8 largest Costa, 1177 Anselmo transactions of the year accounted for over 60% of TalkDesk 3 - Porto - Oriental 1,900 Braancamp, 119 total take-up.
Source: Consultant’s Pool
MATADOURO PROJECT
13 CASA DA MÚSICA 14 PORTO OFFICE MARKET
MARKET RENTS
Prime rents in the city of Porto are practiced in its most emblematic area, Boavista, the CBD of Greater Porto, and are at €18/sq. m/month. Average rents in this zone are around €14/sq. m/month. In Baixa, prime rents are around €17/sq. m/month and average rents at €12/sq. m/month. Matosinhos is the zone with highest rents after the city of Porto, ranging between €11 and €14/sq. m/month. In Vila Nova de Gaia numbers vary between €10 and €13/sq. m/month and in other areas between €10 and €12/sq. m/month. The demanding requirements of RENTS BY ZONE - 2018 large occupiers force PRIME AVERAGE developers into higher (€/sq. m/month) (€/sq. m/month)
1 - Porto - Boavista 18 14 construction costs,
2 - Porto - Downtown 17 12 thus justifying the increases in rents 3 - Porto - Oriental 12 10
4 - Porto - ZEP 12 10
5 - Maia 12 10
6 - Matosinhos 14 11
7 - Vila Nova de Gaia 13 10
The sharp increase in rental values, particularly in the Baixa and Boavista areas in the city of Porto, is the result of much increased demand, mainly driven by large occupiers. The demanding requirements of these tenants force developers into higher construction or refurbishment costs, thus justifying the increases in rents. At the same time, the shortage of supply also contributes to the rise in rents. In the short term further increases are expected, especially in those areas where rents are currently lower.
15 TRENDS Demand With Porto increasingly popular as a competitive office destination in Europe, demand for office space will be sustained in 2019 all throughout Greater Porto.
PORTO
PORTO BUSINESS PLAZA
Consolidation in the east The eastern area of Porto is gaining in relevance and will soon be a new business and cultural hub of the city of Porto.
16 PORTO OFFICE MARKET
Urban regeneration The refurbishment of inner city properties will continue to be essential for the renewal of the city generally and to respond to the demand for office space in particular.
PORTO
Public transport network The improvement of public transport throughout the Metropolitan Area is critical to the development of new projects.
PORTO
PORTO OFFICE PARK
Rental increases The shortage of supply and continued demand for high-quality offices will cause further rental increases.
17 CONTACTS
Eric van Leuven Executive Partner - Head of Portugal [email protected]
Carlos Oliveira Head of Office Agency [email protected]
Filipe Lopes Head of Porto [email protected]
Duarte Corrêa d’Oliveira Office Agency, Porto [email protected] www.cushmanwakefield.pt
João Nuno Magalhães General Partner [email protected]
João Leite Castro Corporate Director [email protected]
Graça Ribeiro da Cunha Head of Office Agency [email protected]
Isabel Rocha Office Agency, Porto [email protected] www.predibisa.com
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MATADOURO PROJECT
19 www.cushmanwakefield.pt | www.predibisa.com